Editor’s Note: The following post comes to us from Robin A. Ferracone, founder and CEO of Farient Advisors. This post is an abridged version of a Farient white paper by Ms. Ferracone and Jack Zwingli; the full version is available here.

Executive Summary

Pay for performance. As the dust settles from year two of Say on Pay proxy voting, and more companies coalesce around accepted pay practices, the top issue for both shareholders and companies is whether pay is aligned with performance. While there is general acceptance that the performance side of that equation should primarily be based on total shareholder return (TSR), there is not yet a commonly accepted definition for pay. The result is that widely divergent compensation numbers currently are being used in pay for performance analysis, leaving shareholders and others unclear on how to evaluate this critical issue.